Abatement Costs Definition
Abatement costs associated with reducing the amount of toxic or unwanted by-products from a manufacturing process is called the Abatement Cost.
A Little More on What is Abatement Costs
The United States Environmental Protection Agency has the right to impose penalties on businesses that haven’t adequately addressed high outputs of toxic by-products in their manufacturing process. History shows that, if the EPA has to step in and forces a company to clean up their manufacturing process, the abatement costs associated with the clean up can be significantly higher and extremely damaging to a company’s bottom-line earnings.
Recently, GE found itself liable for a large environmental clean-up operation in 2006, when the EPA ruled that GE is responsible for the pollution and subsequent cleanup. GE was judged liable for a 197-mile stretch of the Hudson River where two of their plants had discharged 1.3 million pounds of PCBs into the waterway between the years 1947 and 1977. GE would be forced to foot the bill for the operation, including clean up of an additional 40 miles of upstream coastline that was also affected by the pollution. The cleanup operation began in 2009 and, after eight years, was finally completed in 2009.
By the time the environmental cleanup was completed, GE had spent a staggering $1.7 billion dredging the river bed and cleaning up the affected coastline, but it’s not over for GE yet. The EPA has five years to review the job before they release GE from their obligation, and GE could end up having to spend more money on dredging the Hudson if the EPA is not satisfied.
References for Abatement
Academic Research on Abatement
- • The nature of property tax abatement awards, Wolkoff, M. J. (1983). Journal of the American Planning Association, 49(1), 77-84. Abatement exists in other forms besides the specific cost abatement associated with toxic by-products. Property tax abatements are often used as a political tool to attract business or economically develop certain areas. However, awarding property tax abatements indiscriminately is inefficient, and more careful consideration needs to be taken when deciding on the issuance of these incentives.
- • Property tax abatement and economic development in Indianapolis, Coffin, D. A. (1982). Growth and Change, 13(2), 18-23. This paper studies the effects of property tax abatement programs on economic development in Indianapolis.
- • Location and investment effects of a tax abatement program, Morse, G. W., & Farmer, M. C. (1986). National Tax Journal, 229-236. Researchers study the impact of tax abatement programs on local development and capital investment.
- • Tax abatement and tax rates in a system of overlapping revenue-maximizing governments, Beck, J. H. (1993). Regional Science and Urban Economics, 23(5), 645-665. Providing governments with tax abatements can be used as a means of manipulating revenues across overlapping agencies. For example, abating a school district’s property taxes will increase the district’s maximum revenues but have an inverse effect on maximum revenues from municipal taxes.
- • Property Tax Abatement for Low-Income Housing: An Idea Whose Time May Never Arrive, Durchslag, M. R. (1993). Harv. J. on Legis., 30, 367. The notion of abating property taxes for low-income housing residents is an idea that may never come to fruition.
- • Becoming competitive: How policymakers view incentive-based development policy, Burnier, D. (1992). Economic Development Quarterly, 6(1), 14-24. Government officials and policy-makers don’t have particularly strict guidelines regarding the issuance of tax abatements as an economic incentive for businesses. Here, researchers attempt to offer “systematic information” regarding economic development and its relation to tax incentives, and they interview officials in an attempt to solicit from them their criteria for awarding or denying abatement incentives.
- • Taxes, property tax abatement, expenditure, and the composition of the property tax base in communities within a metropolitan area, Wassmer, R. W. (1990, January). In Proceedings of the Annual Conference on Taxation Held under the Auspices of the National Tax Association-Tax Institute of America (pp. 132-140). National Tax Association-Tax Institute of America. This research report examines the distribution of property tax bases in a metropolitan community, and how abatement, along with other policies, affect those statistics.
- • Property tax abatement as a means of promoting state and local economic activity, Wassmer, R. W. (2009).
- Erosion of the property tax base: trends, causes, and consequences. Lincoln Institute of Land Policy, Cambridge, 221-259. This report analyzes the abatement of property taxes as an incentive to promote economic activity. A multi-faceted study on the causes and effects of tax-base erosion is also included in the report.
- • Export promotion programs of Malaysian firms: an international marketing perspective, Ahmed, Z. U., Mohamed, O., Johnson, J. P., & Meng, L. Y. (2002). Journal of Business Research, 55(10), 831-843. Tax abatement programs are widely available to business operators looking to export domestic goods. These export promotion programs have gained in popularity in recent years, but they are being under-utilized because of widespread ignorance of the programs amongst business owners. Therefore, additional emphasis should be placed on educating and informing small and mid-sized business regarding the existence and potential financial benefits of the programs.
- • The economics of location-based tax incentives, Glaeser, E. L. (2001). Local governments have used tax incentives to attract economic development for many years. This study examines the positive and negative impact of these programs. While tax incentives often attract the development local officials seek, these policies may lead to an unintentional redistribution of wealth; an issue that is best addressed with a national redistribution policy.